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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am currently being paid two incomes. One which is my main

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I am currently being paid two incomes. One which is my main salary (35K) and the other is my Armed Forces pension (12k). I am currently on BR Tax Code with my employers, who told me that this was because of my pension!! It appears that I am paying the full amount of tax on both incomes and not getting relief on the 10k free tax amount. Am I entitled to a Tax Rebate, if so how do I go about receiving this
Many thanks

Can you tell me what tax code is being used against your pension please. How long have you have had the two sources of income you mentioned?
Customer: replied 3 years ago.

I am not too sure what the tax code is for the pension. Unfortunately I haven’t received any monthly statement. Both incomes started September 2013


Leave this with me while I draft my answer. It will take a little while so please bear with me.
Hi again.

It's normal for the personal allowance to be used against a pension as that will be paid to your for the rest of your life whereas you may move from one job to another or be out of work for a while.

Assuming you are under 65, your tax code on the pension should be 1000L (personal allowance £10,000). Given that your income in a full tax year is more than the point at which you start to pay tax at 40% (£41,865 for 2014/15), you may in fact not be paying enough tax on your salary if you do have a tax code of 1000L on your pension and a tax code of BR (20%) on your salary.

Call the tax office on the number here and ask them to review the tax codes being used against your pension and your salary and to make any necessary amendments. You might also ask them to issue a P800 for the 2013/14 tax year which ended on 5 April 2014. That will show you whether you have overpaid or underpaid tax for that tax year.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

Does that mean I will pay 40% on income over £41,865 before the personal allowance or is the allowance irrelevant.

The personal allowance is £10,000. The 20% tax band is £31,865. That means that the excess over £41,865 will be taxed at 40%. This can, of course, be affected by personal pension contributions paid net of 20% tax relief at source and gift aid donations paid net of 20% tax relief at source.
Customer: replied 3 years ago.

I have just found my Tax Codes for 2014-15. My Pension is 454L and my employment is BR. Is this correct.When I do the math on both incomes, it appears that I am paying tax on the whole amount

What allowances and deductions are in the 454L code?

Customer: replied 3 years ago.

The personal allowance is £10000

Adjustment to tax rate band is -£5135

Underpayment restriction is -£316 -£5451

Tax free amount ££4549


What they seem to be trying to do is collect the 40% tax due on part of your salary via the tax code being operated against your pension to compensate for the fact that all your salary is being taxed at just 20%. They are also collecting an apparent tax underpayment. I'd call the tax office to find out where the underpayment occurred if for no other reason. The basic rate tax band restriction can work but doesn't always so you should have them look at that too.

Customer: replied 3 years ago.

Thank you. A little wiser. In your opinion, with the little detail given, am I paying too little or too much tax

If you have an annual income of £47,000 and you deduct the personal allowance of £10,000, you are left with a taxable income of £37,000. The first £31,865 will be taxed at 20% (£6,373.00) and the balance of £5,135 will be taxed at 40% (£2,054.00). The total tax for the year will be £8,427, ignoring the underpayment.

Depending on when the codes were first operated, you might be a little underpaid for the current tax year, 2014/15, but you should have the tax office look at the previous tax year, 2013/14, as the tax year where an individual takes a job whilst doing another or already taking a pension is where the problems can start.

Always check your tax codes before the start of thje tax year. Call the tax office if you need to for a pre-tax year review and make sure that your employer and the pension payer have the codes you expect them to have.

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